Royalty Percentage Negotiations

Oil and Gas Leasing Help
#1

Hello. I was wondering if there are any indicator(s) by which to recognize an appropriate, or inappropriate royalty percentage on a division order.

I ask because I just received a division order from my second lessee in about six months. My decimal interest from the first lessee was something like .00033462 and the monthly royalties from that company seemed, from a laymen's perspective, to be quite low compared to the lump sum that they offered to buy me out.

The decimal interest from the second lessee on the division order which I just received is .0001473. Just wondering if there is any gauge or standard to tell if the royalty percentage is fair. There are, I BELIEVE, 32 acres in the Bakken on which I have mineral rights. I don't want to start negotiating and seem unreasonable, but also do not want to get undercut which I assume is not totally uncommon given that these firms, understandably, seek to maximize profits in every case. Thanks a lot!

-Joseph

#2

I’m sorry, only two zeros in front of those decimal interest numbers. :slight_smile:

#3

To calculate your net revenue interest use the following formula: number of acres /acres in unit = unit tract interest X royalty reserved in lease = your unit net revenue interest.

#4

Thank you James. I guess I'm curious as to how the lessee comes up with the royalty reserved in the lease, and if they can get away with a lowball, or unfair figure, which would then obviously bring down the unit net revenue interest. Is this amount a totally arbitrary figure or dependant on some calculus?

Also, one more question that is somewhat unrelated; How does the price of oil per barrell figure into the lessor's monthly royalties, and are monthly royalties usually set based on the price per barrell at the time of the lease, or can the monthly royalties change (increase or decrease) based on the change in price of oil from month to month?

Thanks very much again.

#5

Just ONE MORE THING. The only reason I ask if the price of oil and montly royalties are correlary is because my first three royalty checks have ALL been $893.00 which leads me to believe that the rising price of oil will have no impact on future royalties. Sorry if some of these questions are basic, I am a novice!! Thanks for any consideration and reply!!

joseph schwartz said:

Thank you James. I guess I'm curious as to how the lessee comes up with the royalty reserved in the lease, and if they can get away with a lowball, or unfair figure, which would then obviously bring down the unit net revenue interest. Is this amount a totally arbitrary figure or dependant on some calculus?

Also, one more question that is somewhat unrelated; How does the price of oil per barrell figure into the lessor's monthly royalties, and are monthly royalties usually set based on the price per barrell at the time of the lease, or can the monthly royalties change (increase or decrease) based on the change in price of oil from month to month?

Thanks very much again.

#6

When you signed the lease you agreed to retaining a royalty of some percentage of production between one eighth and one quarter. only you know what that royalty was as you have not shared it with this discussion. The percentage of production that is royalty is determined by the terms of the lease and not the whim of the operator. The price that the operator sells oil and the price that the operator sells gas is a direct factor in determining how much money you receive in your royalty check. The amount of product, oil or gas, is reported in the check as well as the price the operator was paid for the product. None of this is a mystery, it’s fifth grade math.

#7